Landmark Ruling: Federal Court sides with Block Earner over ASIC

Date: 22 April 2025

In a significant decision with potential ramifications for the regulation of cryptocurrency products in Australia, the Full Court of the Federal Court has overturned an earlier ruling, finding that Web3 Ventures Pty Ltd's (trading as Block Earner) "Earner" product was not a financial product under the Corporations Act 2001 (Cth). The unanimous judgment ([2025] FCAFC 58) delivered on April 22, 2025, set aside the primary judge's declarations that Block Earner had operated an unregistered managed investment scheme (MIS) and carried on a financial services business without an Australian Financial Services Licence (AFSL).

This ruling provides crucial clarity on how fixed-return crypto-lending products interact with Australia's existing financial services framework, emphasising the importance of contractual terms over marketing representations and clarifying the definition of key regulatory concepts.

The Product Under Scrutiny: Block Earner's "Earner"

Between March and November 2022, Block Earner offered its "Earner" product. It allowed customers to provide cryptocurrency (like USDC, Bitcoin, or Ethereum) to Block Earner, described in the Terms of Use as a "loan". In return, customers received a fixed rate of interest, paid daily in the same cryptocurrency.

Block Earner's business model involved taking the cryptocurrency "loaned" by users, pooling it with its own crypto assets, and lending this larger pool to third-party platforms (like Stablehouse and XBTO) at higher interest rates. The difference constituted Block Earner's profit. Critically, users received their fixed return regardless of the success or failure of Block Earner's own lending activities.

The legal battle centred on whether this arrangement constituted a "financial product". ASIC argued it did, contending it was an MIS, a facility for making a financial investment, or, failing that, a derivative. Block Earner disputed all three classifications.

The Legal Battlegrounds: MIS, Financial Investment, Derivative

The case hinged on the precise definitions within the Corporations Act:

1. Managed Investment Scheme (MIS): Defined in section 9, an MIS relevantly requires:

   1. Contributions of money/money's worth for rights to benefits produced by the scheme.

   2. Contributions pooled/used in a common enterprise to produce financial benefits for the members.

   3. Members lacking day-to-day control.

2. Facility for Making a Financial Investment: Defined via section 763B, this occurs if an investor contributes money/money's worth and:

   1. The recipient uses the contribution to generate a return/benefit for the investor; OR

   2. The investor intends the contribution be used to generate a return/benefit for the investor; OR

   3. The recipient intends the contribution be used to generate a return/benefit for the investor; AND

   4. The investor lacks day-to-day control.

3. Derivative: Defined in section 761D, this broadly involves an arrangement where future consideration must be provided, and the amount/value is ultimately determined, derived from, or varies by reference to something else (like an asset, rate, or index).

ASIC's case heavily relied on an FAQ response on Block Earner's website (from March-May 2022) stating Block Earner generated returns by "pooling customer funds" and lending them out. ASIC argued this showed the necessary link between pooling, the scheme's activities, and the benefits (interest) paid to users.

Block Earner countered that the binding Terms of Use explicitly stated the arrangement was a loan, interest was fixed and not referable to Block Earner's activities, and users acknowledged they did not intend for their crypto to be used to generate a benefit for them or act as an investment for them.

The Full Court's Analysis: Contract Trumps Representation

The Full Court (O’Callaghan, Abraham, and Button JJ) systematically dismantled ASIC's arguments, favouring Block Earner's interpretation based on the contractual reality.

• Not an MIS:

  • Benefits Produced by Scheme (s 9(a)(i)): The Court found the "benefit" users acquired was the contractual right to repayment of principal and fixed interest, not a right linked to the success of Block Earner's separate lending activities. The FAQ described how Block Earner could meet its obligations, not what rights users acquired. Quoting ASIC v Great Northern Developments, the Court stressed: "it is a mistake to conflate an expectation that a return will be generated from a scheme with a right to receive a benefit from the scheme which is consideration for the member’s contribution". The Court found the primary judge erred in relying on the FAQ over the clear Loan Terms.

  • Pooling for Members' Benefit (s 9(a)(ii)): The explicit disclaimers in clause 4.3(l) were crucial. Users expressly agreed they did not intend for Block Earner to use the crypto to generate a financial benefit for them. This negated the requirement that pooling be for the purpose of producing benefits for members. The Court found the primary judge's attempt to reconcile the FAQ with the contradictory clause 4.3(l)(iii) unconvincing.

    
    

• Not a Financial Investment:

  • The Court held Block Earner used the contributions to generate returns for itself, not for the investors. Enabling Block Earner to meet its fixed debt obligation was different from generating a benefit for the investor under s 763B(a)(i).

  • Block Earner's intention (s 763B(a)(iii)) was clearly to profit itself, not generate benefits for users beyond the fixed contractual rate, as evidenced by the terms and business model.

  • The Court rejected the primary judge's inference about investor intent (s 763B(a)(ii)) based on the FAQ, finding it speculative and contrary to the explicit, agreed-upon Terms of Use. It saw "no reason to assume (as the primary judge did) that users would not have read the Terms of Use", which directly negated the requisite intent.

    
    

• Not a Derivative:

  • ASIC argued the potential conversion of the final crypto payout back to AUD (as per clause 4.3(j)) made the value dependent on the exchange rate, satisfying s 761D(1)(c).

  • The Court rejected this, finding the core "arrangement" was the crypto loan for fixed crypto interest. The AUD conversion was part of a separate "Exchange service".

  • Crucially, the Court held it wasn't reasonable to assume the parties regarded the loan and the exchange as a "single scheme" under s 761B, particularly as the AUD conversion wasn't mandatory – users could (and did) receive crypto in kind or move it to other services. "this aspect of the agreed facts exposes that the proposition underpinning ASIC’s position — namely, that conversion into AUD was an inherent and inevitable component of the Earner product — must be rejected.".

Summary of Key Legal Issues

Legal Issue	ASIC's Argument	Block Earner's Argument	Full Court's Conclusion ([2025] FCAFC 58)
Managed Investment Scheme (MIS) - s 9	Earner involved pooling funds (based on FAQ) used in a common enterprise (BE's lending) to generate benefits (interest) for users, linked to the scheme's activity.	Contractual terms defined it as a loan. Interest was fixed, not referable to BE's activities. Users acquired no rights to benefits produced by the scheme, only contractual repayment. Users explicitly disavowed intent for pooling to benefit them.	Not an MIS. Benefits were contractual debt, not linked to scheme production. Pooling was not for the purpose of producing benefits for members, given explicit contractual disavowals. Contract terms override FAQ representation.
Facility for Financial Investment - s 763B	BE used contributions to generate returns for users (interest). BE intended this (business model, FAQ). Users likely intended this (based on FAQ, overriding contract).	BE used contributions for itself to fund its own debt, not for users. BE intended profit for itself. User intent negated by explicit contractual terms (cl 4.3(l)(iii)).	Not a Financial Investment. Contributions used for Block Earner, not for the investor. Block Earner did not intend to generate benefits for users beyond fixed interest. User intent negated by unambiguous contract terms.
Derivative - s 761D	Potential AUD conversion at exit (cl 4.3(j)) meant final consideration varied by reference to AUD/crypto exchange rate (s 761D(1)(c)). Loan + Exchange = single scheme (s 761B).	Core arrangement was fixed-rate crypto loan; value didn't vary. AUD conversion was separate, optional Exchange service. Not reasonable to assume parties saw loan + optional exchange as "single scheme" (s 761B). Users could exit in crypto.	Not a Derivative. Core arrangement (crypto loan) didn't meet s 761D(1)(c). AUD conversion via Exchange service was distinct. S 761B didn't apply; not reasonable to assume a single scheme, especially given exit options.
Ancillary Issues	If financial product, BE contravened s 911A (no AFSL) & s 601ED (unregistered MIS). Appealed against relief from penalty, seeking $350k fine.	Argued no contraventions as Earner wasn't a financial product. Defended relief from penalty based on primary judge's findings (honesty, advice, no loss etc.).	As Earner was not a financial product, no contraventions occurred. Declarations set aside, proceeding dismissed. ASIC's appeal on penalty dismissed as moot.

Implications and Takeaways

This judgment offers significant guidance:

1. Contract is King: Explicit, agreed-upon contractual terms defining the nature of the arrangement and the parties' rights and intentions are paramount, even if potentially contradicted by website marketing material like FAQs.

2. Substance over Form (but Form Matters): While courts look at the substance, the legal form chosen (here, a loan with explicit disclaimers) significantly impacts the analysis under current laws. The structure prevented the interest payments from being legally considered "benefits produced by the scheme" or returns generated "for the investor."

3. Distinguishing Debt from Investment: The Court clearly distinguished between a platform using funds to generate revenue for itself to meet fixed debt obligations, and a platform using funds to generate returns for investors that are tied to the underlying activity. Only the latter aligns with traditional MIS or financial investment concepts.

4. "Single Scheme" Test (s 761B): For arrangements to be bundled, it must be "reasonable to assume" the parties regarded them as a single scheme. Optionality (like choosing payout in crypto vs. AUD) weighs against such an assumption.

While providing clarity under existing law, this decision may also fuel ongoing debate about whether Australia's financial services regulations, designed before the advent of complex crypto products, are fit for purpose in the digital asset era. For now, however, Block Earner has secured a decisive victory, confirming its Earner product, as structured, fell outside the regulatory net for financial products.

Disclaimer: This article summarizes a court judgment and does not constitute legal advice. You should consult with a qualified legal professional for advice specific to your circumstances